A final round of regulations to put finishing touches on California's greenhouse gas cap and trade program is under way. Everyone is watching to see if the California Air Resources Board will make the right decisions to lower emissions while protecting consumers and jobs. There is good reason to worry because the ARB's actions so far have failed to strike the right balance.
You might think that since cap and trade has already started, and costs have been low, there is nothing to worry about. But stay tuned an expensive bomb is about to drop on California's fragile economy. Manufacturers and other companies won't make new investments or hire workers if cap and trade costs are too high and unpredictable.
The ARB planned for the first years of cap and trade to be easy on consumer pocketbooks. Residential and small-business customers haven't seen higher electric bills, nor have car and truck owners seen higher gasoline prices. So far only emissions from the largest manufacturers and power plants have been regulated.
Hold on to your wallet; that's about to change. Starting in 2015, all businesses and most residential consumers will face higher gasoline, natural gas and electric bills when all emissions are "under the cap." Every kilowatt of electricity, every therm of natural gas and every gallon of gasoline will include a new carbon tax.
The good news is that the ARB could fix the rules to avoid some of these costs while still reducing emissions. The independent Legislative Analyst's Office and even Mary Nichols, chairwoman of the ARB, agree we can reduce greenhouse gas emissions as required by law with a different, less expensive, approach.
The fix is simple require emissions to be reduced under the cap, but don't let state government collect an additional, unnecessary auction tax. The extra tax will take billions of dollars from California manufacturers, threatening high-wage jobs and new manufacturing investments, and the tax will drive up electricity and product costs on all California consumers. In April, more than a dozen companies signed a letter asking for relief from the auction tax that will hit them hard beginning in 2015.
The money would be used for environmental programs not yet identified and not needed to meet our emission reduction goal. This tax burden will be imposed at the same time higher state sales and income taxes are being collected under Proposition 30 passed in 2012. The timing of the ARB auction taxes could not be worse just when we should do all we can to grow jobs and improve the economy, we will instead add costs and threaten jobs.
California wants to show that environmental and economic interests can align to achieve successful outcomes on both fronts. The world is watching to see if our high-profile cap and trade program will be a rousing success or a dismal failure. The ARB should use this last chance to set the program on a sensible course to accomplish all our high-priority economic and environmental goals.
Jack Stewart is president of the California Manufacturers & Technology Association.